In Silicon Valley, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to January 2023. Low, but growing, inventory and high demand have more than offset the downward price pressure from higher mortgage rates. Year to date, in September, the median single-family home and condo prices rose across counties. Year over year, prices increased most significantly for single-family homes, up 6% in San Mateo, 3% in Santa Clara, and 8% in Santa Cruz. Prices typically peak in the summer months, and this year San Mateo and Santa Clara reached record highs in May, so we don’t expect new all-time highs for the rest of this year. However, we do expect some minor price contraction in the fourth quarter.
High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates near 6% much more than around 7%. Now that rates are declining, sales could get a little boost, but the housing market typically slows in the fourth quarter of any year.
New listings rose in September, causing inventory to increase
The 2024 housing market has looked progressively healthier with each passing month. We’re far enough into the year to know that inventory levels are about as good as we could’ve hoped, although single-family home inventory is still lower than we would like. In 2023, single-family home and condo inventory followed fairly typical seasonal trends, but at significantly depressed levels. Low inventory and fewer new listings slowed the market considerably last year. Even though sales volume this year was similar to last, far more new listings have come to the market, which has allowed inventory to grow. However, for single-family homes, even though inventory is up 16% year over year, it’s still 21% lower than it was two years ago.
Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. It’s looking like 2024 inventory, sales, and new listings will resemble historically seasonal patterns, and at more normal levels than last year. However, inventory still increased in September, which is atypical. Falling mortgage rates have brought buyers and sellers back to the market during the time of year the market tends to slow significantly.
Months of Supply Inventory indicated a sellers’ market in San Mateo and Santa Clara
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). The Silicon Valley market tends to favor sellers, which is reflected in its low MSI. In 2024, Silicon Valley MSI moved higher, particularly in Q2. In September, MSI indicated a sellers’ market for single-family homes in San Mateo and Santa Clara and a buyers’ market in Santa Cruz. For condos, Santa Clara favors sellers, Santa Cruz favors buyers, and San Mateo is more balanced.
